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AEC 2010 - Impact of the Business Environment on Output and Productivity in Africa

12-Oct-2010

Africa is the poorest part of the world and it has the worst environment for long term business success by most of the standards. Empirical works normally find a negative correlation between GDP per capita and measures for business environment. This paper develops a general equilibrium model to assess the quantitative effects of business environment, including entry barriers, access to finance, regulation, crime, corruption and infrastructure, on output and TFP for 30 Sub-Saharan African countries. We find that the quantitative effects of these dimensions of business environment are large. They together can explain about 80% of the variation in income per capita relative to the US for the thirty African countries we study. Improving these dimensions of the business environment will be key for the long term development of the continent.